Lithuania’s economy posts strongest growth

Lithuania’s economy posts strongest growth

Baltic economic overview - Lithuania

Important economic figure forecasts for 2017

GDP growth: 2.4%

Unemployment: 7.4%

Inflation: 1.9%

Doing Business 2017 ranking – 27th

Sources: Bank of Lithuania, World Bank

Compared to the other Baltic countries, Lithuania posted relatively poor results in regards to foreign trade in 2016, however, this did not hamper Lithuania in registering the strongest economic growth amongst the three Baltic countries. According to calculations, Lithuania’s GDP increased by 2.3% last year, while GDP growth in Latvia and Estonia was below 2%.

Domestic consumption fueling economy

Lithuania’s GDP in 2016, compared to 2015, increased by 2.3%, reaching EUR 38.56 billion in current prices. Just in the fourth quarter alone Lithuania’s GPD increased by 2.7% (according to seasonal adjusted data), to EUR 10.038 billion. Similar to previous years, Lithuania’s economy was stimulated by domestic consumption in 2016, as well as the export of products and services. Domestic consumption was mostly stimulated by an increase in wages, as well as the creation or new jobs and an increase in the availability of loans. The greatest added value to the country’s GDP came from the trade sector, the transportation and storage sector, as well as the hospitality sector. On the other hand, growth was hampered by the slow implementation of EU funding programs, as well as a reduction in construction volumes. A reduction in investments was also observed in Lithuania last year. For example, there was a EUR 164 million reduction in investments in the construction and real-estate sectors. However, investments in equipment increased by EUR 31.5 million last year, mostly coming from private sector investments.

Drop in unemployment

Despite relatively weak economic growth, the unemployment level in Lithuania last year continued to drop, especially youth unemployment. Overall, the unemployment level in Lithuania fell by 0.5 percentage points in 2016, reaching 7.5%. On the other hand, youth unemployment reduced by 2.6 percentage points to 13.1%. There was also a reduction in the number of long-term unemployed persons – by 0.3 percentage points to 2.8%. Employment was facilitated by the private sector last year, mostly in the trade, industrial and construction sectors. Even though the construction sector has able to ensure new jobs last year, the sector continued to be in recession last year, as construction volumes reduced by 11.3%.

Concerns about export tendencies

Experts from the Lithuanian central bank point out that the export sector in 2017 might not be as successful as before. Such concerns are mainly due to the slower than expected economic growth in China. Even though Asian countries are not very important trade partners for Lithuania, the economic situation in Asia is important for the partners of Lithuanian companies in other countries. At the same time, export could also be negatively impacted by increasing protectionism in some countries around the world. Lithuanian economists are also concerned about domestic consumption, taking into account that wages are increasing faster than productivity, meaning that this could impact the competitiveness of companies. At the same time, negative trends in the age structure of residents leads to concerns about the involvement of younger persons in the job market.

Priority sectors

* Agriculture has traditionally been an important part of Lithuania’s national economy. Half of the country’s territory is made up of arable land. There has been an increase in the consumption of vegetables in Lithuania the past several years, while the consumption of meat, milk and dairy products has fallen.

* In additional to more traditional sector, Lithuania has defined manufacturing, information and technology, and life sciences as priority sectors as well.

*With the aim of attracting more investments, Lithuania approved new financial technology, or FinTech, sector regulations last year. It is believed that the new regulations will serve as a stimulus for start-up companies.

Risk factors

* A main challenge for Lithuania remains the ability to ensure export growth, which is especially important after the sanctions imposed on Russia. Even though Lithuania saw an increase in exports last year, the country must continue to think of ways to present its products in the current global situation, when potential cooperation countries are still being economically careful.

* One of the main economic growth risks in Lithuania is associated with ensuring productivity and increasing competitiveness. This risk could lessen with the faster attraction of EU funding.

* Another one of the main problems in all three Baltic countries is the lack of a workforce. As Lithuania’s population continues to dwindle, the qualified workforce also does, which in turn undermines the competitiveness of local businesses.

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